It's a familiar scenario for some: you've worked for the company for years, and feel your contributions are under-appreciated, and that it's time to look for new opportunities. You begin the job search process, and find a new employer who is excited to have you come on board, providing a nice increase in your compensation as a part of the package. Deciding to take the new offer, you go back to your original employer to break the news... only to discover that, when faced with your anticipated departure, the attitude has changed. Suddenly, your existing employer offers you higher compensation; perhaps a promotion and new title; maybe even some equity in the company. So what do you do? Are you appreciative your employer finally recognizes your value? Or insulted that it took your imminent departure to raise the issue? If you're the employer, did you just come up with a way to retain your employee, or hasten his/her departure?

The inspiration for today's blog post is a situation that recently arose for my business partner Caleb Brown in our firm New Planner Recruiting, which was essentially a mirror of the scenario described above. An individual contacted us after several years of feeling discontent and unrecognized at his current firm. We found a firm that would be a good fit for him, and that appreciated some of his unique abilities and background. They made a reasonable offer, which he liked. But upon returning to his original firm to inform them of his decision to leave, they unexpectedly responded with a counter-offer... a whopping 50% raise, and a significant promotion in the career track.

On the one hand, he was flattered. Finally, to be recognized for the contributions he makes to the firm! Clearly, they didn't want him to go, and were making it clear that they really viewed him as a valuable part of the company. The promotion would allow him to move further down the career track at the company, and the salary increase itself was very significant, bringing him materially above even the compensation level he had just been trying to negotiate for himself at the new employer.

On the other hand, he was insulted. It took a very real threat of leaving, just to be recognized!? The company valued him so much it was willing to give him a huge raise, yet what if he hadn't threatened to leave... would the company have just continued paying him at the lower rate? Does that mean they were deliberately taking advantage of him, using the fact that he had been a loyal employee to under-pay him, just because they could get away with it? If the company was willing to pay him less than they thought he was really worth in the past, isn't there a significant risk they'll do it again? Is that the kind of company at which you even want to build a long-term career?

If you were an employee in this situation, how would you feel? Would you be insulted the company was "suddenly" willing to pay you so much more, implying they were deliberately underpaying you in the past, and leave? Or would you be flattered that the company was finally recognizing your value, and stay? Would the fact that the original company was willing to pay you even more than the new offer help to sway you one way or the other?

If you're a firm owner, what would you do? Is having a big counter-offer ready a good idea? How do you balance the need to keep the firm profitable, and not just "throw" money at your employees, with a desire to keep your employees compensated and motivated? Is it "good business" to always pay your employees the maximum amount you'd ever offer them in the event they threatened to leave, or does that just tend to overpay your employees?

What do you think? What would you do if you were the employee in this situation? If you were the firm owner? Is this good business, or bad business?

Related

Michael, I’ve experience the exact same issue, to the same 50% raise, and it is not good for business.

As an employee you now realize your employer agrees with what you were probably communicating to them — that you have greater potential and are worth more — and they possibly are acknowledging they told said otherwise previously.

Some employers while admitting to the pay raise, will hold it against you now in that they may come up with unrealistic work demands to justify the increase. The willing to jump ship card is a tell in my mind that the relationship failed fundamentally, and there’s not reason to think it won’t again. The thing is the employee won’t be able to do it again and expect similar results, and it’s possible the employer begins to realize that, feels they have an upperhand again, and you’re back at square one in the future with being underpaid, underchallenged.

There is a market for labor, and granted some employees will work in an ideal situation for less pay, but when one has been upfront about their desire to move forward, to my mind it shows a lack of basic communication skills for an owner; it could be the employee has not been vocal, but it’s also possible the employer isn’t truly hearing an employee’s complaints. A 50% hike it too big to say something didn’t go completely wrong in the relationship, I realize the above sounds anti-capitalist / anti-employer, but I think it’s more the case of failed business communication… Rob

Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

What Michael’s Reading

Out and About

Thursday, March 5th, 2015

*Future of Financial Planning in the Digital Age @ Private Event

Tuesday, March 10th, 2015

*Understanding Longevity Annuities and their Potential Role in Retirement Income
*The Impact of Valuation-Based Asset Allocation on Retirement Income
*Future of Financial Planning in the Digital Age @ FPA San Francisco